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October 5, 2012

The real employment picture: digging deeper into September’s 7.8 percent unemployment figure

by Rylan Stewart

At 7.8 percent, unemployment dipped below 8.0 percent for the first time in 43 months according to September’s Bureau of Labor Statistic (BLS) Unemployment Report. Nonfarm payrolls increased by 114,000 thousand in September, which is an improvement from August’s initial reading of 96,000, but still well below the kind of numbers needed to get the nation back to work.

 

What you should know

When we talk about unemployment, the number you will always hear is the “U3″ measure. This is the one President Obama and Governor Mitt Romney discussed during Wednesday’s debate, and it is the one making the headlines today: 7.8 percent. The U3 mark counts jobless people who have looked for work in the past four weeks.

[Related: At 367,000, September 29 week jobless claims up from previous report]

Whereas the 7.8 percent (U3) number only considers the unemployed still looking for work, another measure, called “U6″, also considers “depressed” workers, who have dropped out of the labor force because they can’t find work, and the underemployed, who would like to work full-time but cannot for whatever reason. The U6 rate of September came in at 14.7 percent.

As for the nation’s overall employment picture, 58.7 percent of the U.S. population is currently employed. The labor participation rate, which includes both workers and people looking for work, is at 63.9 percent, a number near 30-year lows.

 

So with just 114,000 jobs added, why did the unemployment rate drop?

The 114,000 number represents payroll jobs added by businesses, but this doesn’t include a large section of American workers.The second section of the BLS report is the “household survey”, which includes the self-employed, agricultural workers, private household workers, and unpaid family workers. While business payrolls showed a modest 114,000 additional jobs added, the household survey showed a jump of 873,000 workers in the workforce, representing the largest monthly jump in 29 years.

[Related: Consumer Confidence at third-highest rate of the recovery]

 

The real employment picture

Digging beneath the numbers, there are three additional numbers to consider before making any claims about the “employment” picture. Speaking with my opinion now, the simple number of workers is not so important if the employed aren’t making enough to earn a living. This is where the “job market recovery” remains weak.

The first factor is relatively simple: are employed Americans working enough to make a living?

Much of the jump in employment seems to be characterized by part-time workers – in September, there were 582,000 more people with part-time jobs over the previous month. The number of part-time workers grew to 8.6 million in September.

This number could represent crucial supplemental income for families, but it could also mean that the work available isn’t enough to support a family. These workers are classified as looking for full-time work, but unable to find it.

[Related: U.S. GDP revised down to 1.3 percent growth in second quarter

This brings us to the second important point of context: moving beyond the basic number of employment added and looking at the quality of the jobs.

The National Employment Law Project, a New York advocacy group, estimates that 58 percent of the jobs added during the U.S. economic recovery have been low-wage occupations.

We need to make sure that Americans get back to work, but that the work pays enough to make a living.

This brings us to our third and final point to consider: wages.

The average hourly earning for all private sector jobs ticked up seven cents to $23.58 from August, an increase of 1.8 percent overthe last 12 months. However, this number is struggling to keep up with inflation.

The Consumer Price Index, a measure of inflation, was up 1.7 percent over the previous 12 months in August. With the October report due out on the 16th, inflation could come to eclipse wage increases, which would suggest a net decrease in the purchasing power of the average household. With the U.S. Federal Reserve’s action to stimulate economic growth by pumping money into the economy (QE3), inflationary pressure could grow even further.

 

Conclusions

It is important to add jobs to the economy, but the ability to make a living is even more important, and this ability cannot be measured by “unemployment numbers” alone. It is encouraging that the U6 employment figure of 14.7 percent (factoring in both unemployed, underemployed, and depressed workers) is down from 15.1 percent to start 2012 and well-below the peak of 17.2 percent during October 2009.

On the other hand, for the recovery to adequate, the economy needs to be adding quality full-time jobs that pay workers a living wage.

So don’t get distracted by the 7.8 percent unemployment statistic. While a step in the right direction, we still have plenty of work to do. One estimate I saw suggests that to return to peak employment, we need to add 10 million jobs. At this pace, we won’t get there for a decade.

 

Central Coast Lending is a California mortgage brokerage based in San Luis Obispo County. With offices in San Luis Obispo, Morro Bay, Paso Robles, and Arroyo Grande, Central Coast Lending is the top source for Central Coast mortgage, real estate, and home loan needs. To see why using a broker offers lower rates and superior service, click HERE. For a free, hassle-free online pre-qualification click HERE or call 805.543.LOAN to talk to one of our expert loan officers.


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